German finance minister Peer Steinbrück has made some enemies lately, giving an interview in which he accused the UK of “crass Keynesianism” and complained that it had spent so many years lecturing the rest of the EU about fiscal rectitude. The last bit’s pretty cheeky from a German finance minister, after all those years of Hans Eichel and the Bundesbank directors wagging their fingers at those irresponsible southerners, but let’s let it pass. Steinbrück got called into the British embassy, but very soon he had more serious problems.
Let’s stop and think about this for a moment; what were his motivations? The first thing to remember is that an EU member state spends on average about 20% of GDP on imports from other members. The second is that industrial exports make up a really big chunk of the German economy. So if you’re Germany, and you don’t think the recession will be quite that bad, there’s an argument for sitting tight and enjoying about 20% of everyone else’s fiscal stimulus. Obviously the net leakage will vary depending on the exact details; a consumer-side stimulus like the UK one will probably leak more, a public works one like the French rather less, in so far as it’s labour-intensive and therefore nontradable. If, however, it involves buying a lot of Repower wind turbines, QCells solar panels, or Siemens trains and control electronics, well, perhaps not so much.
And arguably the UK consumer sector is less likely to import from Germany than it is from the world dollar zone, specifically China. The main exception is cars, but new car purchases are almost all on credit, and the sector is currently credit-rationed. So perhaps he was talking his own book? Surely, however, in this case he wouldn’t have attacked the stimulus in general. Another possibility is that he’s thinking of German politics. The more the rest of Europe stimulates, the more pressure on Steinbrück to do likewise – from the coalition partners, from the French, and from the SPD membership. After all, down at the provincial level, there have been rumblings for weeks about the NRW state government buying into the Opel plants if GM goes bust; the car industry is hugely important and it’s in deep trouble.
The French. Well, as Le Monde reports, Germany is being placed under intense diplomatic pressure by France and the UK. It’s a little-remarked on aspect of the crisis that Anglo-French relations have become very good, a continuation of a Blair government trend. Politically, it’s much more acceptable for a German government minister to have a public row with the British – but as the Le Monde article makes clear, there is considerable tension between France and Germany. So much so that Merkel publicly reiterated a commitment to Europeanness in a recent press conference.
So why is he clinging to the point? Probably because he wants to go into an election with a balanced or close to balanced budget as an accomplishment he can stick a big red SPD flag in, and not incidentally, write his name on. This implies he’s thinking of fighting the election across the centre ground, trying to score off the CDU and FDP, rather than trying to regain ground from the Left. But is this at all realistic? In an interview with Der Spiegel, none other than Paul Krugman declared that both Steinbrück and Angela Merkel have underestimated the seriousness of the situation. Der Spiegel also claims that the government is expecting a deficit of 3% of GDP. Elsewhere, on his own weblog, Krugman deployed the ultimate economic rhetorical weapon – The Economic Consequences of Herr Steinbrück, no less. Meanwhile, the chief economist of the OECD chipped in as well.
The upshot? What have we here? A €30bn German fiscal shot is apparently being prepared; note that the work is going on between Merkel’s office, the (conservative) Minister of the Economy, and the coalition partners, cutting Steinbrück and the Finance Ministry out of the process. Of course, he retains the power of the purse, but then, Merkel retains the Richtlinienkompetenz and could stick a directive down his shirt front. (Which appears to be what Nicolas Sarkozy is expecting.) Or he could be sacked. Either course would leave the SPD faced with a choice between its cabinet-level leaders and its membership; fighting for Steinbrück’s authority could involve fighting an election on a promise of fiscal restriction, just as millions of IG-Metall members are terrified of losing their jobs.
After all, down in the microeconomy, BMW is about to offer emergency funding to its suppliers and dealerships in an effort to prevent a wave of bankruptcies. ZF, the gearbox maker, is worried both about its unpaid bills from the car makers and also about the availability of credit to its subcontractors. Today’s meeting at the Kanzleramt looks like it’s going to be tasty, to say the least.
